What is a lock commitment letter?

Answer:

The lock commitment letter is a letter provided by the lender to the borrower that the rate and terms of the loan have been locked. In the case you are dealing with a mortgage broker, be advised and demand to see the lock commitment letter. Some brokers wouldn't lock and allow the rate to float.

When purchasing a house, borrowers have to take a mortgage loan - very few can
afford to pay cash. When shopping for a loan and looking for a house, prequalification and preapproval are important steps of the process. At the prequalification stage, you talk over the phone with a home loan specialist and find out how much you can borrow.

At the preapproval stage, the lender will issue a lock commitment letter that you can
bring to the seller to show you have already obtained financing. A seller would
much rather prefer to deal with borrowers who show proof that they already
obtained financing rather than with borrowers who are still looking for a loan.

The lock commitment letter binds the lender to rate and terms of the loan for a specific
period of time and for a fee.

The borrower should expect to pay around one
point for a thirty day lock period, and one eighth of a point for every two
weeks thereafter. When the lock period expires, the lender is no longer
committed to this rate.

Even though a lock commitment letter requires commitment from both lender and borrower, if there are sharp market rate changes, or the borrower succeeds in finding more competitive terms with
another lender, both lenders and borrowers could back off the lock agreement.
Borrowers are known to practice this more often than lenders, but some brokers
or lenders would also back off a lock on purpose.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.